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  • Featured, Gadgets, Industry - Written by on Monday, March 25, 2013 15:31 - 24 Comments

    Apple’s longest statement about Australia ever

    This brief speech was read by Apple Australia managing director Anthony King to Australia’s House of Representatives’ Standing Committee on Infrastructure and Communications last week on Friday 22 March. As far as Delimiter is aware, it represents the longest and most detailed statement technology giant Apple has made with respect to its operations in Australia over at least the past decade, as well as one of the only times King has spoken in public on any occasion. This is why we publish it here in its entirety for the record.

    When you read this statement, bear in mind the context in which King is speaking. It was recently revealed that Apple Australia made local revenues of $6 billion in the year to the end of September 2012. Its Australian revenues have grown from a base of $720,000 in 2006. The company paid local taxes last year of just $40 million, off claimed net profit of $98.6 million. Apple’s iPad tablet enjoys close to monopoly market share in the Australian tablet market, and it also has a very high market share in the smartphone and digital music markets. Apple did not voluntarily appear before the committee, but was compelled to do so.

    speech Good morning chair and members of the committee. I am here today to respond to the committee’s request to address stated concerns regarding Apple’s hardware and software pricing and to help the committee better understand why there may be differences in the prices of Apple products sold in Australia when compared with other markets, including the United States.

    Apple is proud to do business in Australia. Our goal is to provide our customers with the world’s best products and services coupled with an unrivalled user experience. We sold out first computer here over 30 years ago and today have an enthusiastic community of customers and software developers across the country. We operate 18 Apple retail stores nationwide and, combined with our corporate office in Sydney, employ over 2,600 people.

    Apple’s main corporate activities in Australia include the sale and distribution of our products through our channel partners located in over 6,000 sites across the country, our Apple retail stores, the Apple online store and the iTunes store. In addition there are over 160,000 app developers in Australia who are enjoying success around the world by selling their applications on the App Store. Many of these are individuals and small companies now competing head-to-head with the biggest names in the global software industry. We are delighted to have played a role in creating this new app economy.

    The first point I would like to address today is the pricing of Apple products in Australia. When we launch and price an apple product for sale, our goal is to offer equivalent pricing around the world. Setting aside the daily ups and downs of currency exchange rates, our Apple product prices here in Australia are not materially different from the Apple products sold in the United States. In fact, today the price for the new iPad with retina display and the iPad Mini are within one to five per cent of the prices in the US. The same is true of Apple’s own software titles offered on the Mac App Store, including Final Cut Pro, Logic, iPhoto, iMovie and GarageBand. These products are all priced in Australia within one to three per cent of the prices in the United States.

    When comparing prices it is important to remember that the US retail prices do not include sales tax. Here in Australia, of course, a price includes a 10 per cent GST. That fact alone is responsible for a great deal of confusion and has resulted in some inaccurate conclusions regarding our pricing. When pricing Apple products for the Apple online store and at Apple retail stores in Australia, price considerations must go well beyond simply looking up a currency exchange rate. For example, Apple must consider differences between countries in product costs, freight charges, local sales taxes, levies, import duties, channel economics, competition and local laws regarding advertised prices.

    This detailed financial analysis results in product pricing that may be either slightly lower or slightly higher than US pricing for the same product. As you can imagine, it would be unduly complex to administer and confusing to our customers to attempt to adjust every product price with the daily fluctuations in the currency exchange rates. Therefore, Apple re-evaluates and adjusts local prices to be in line with the US prices, among others, at the time of new product introductions.

    However, primarily because of currency fluctuations on any given day, Apple product pricing may appear higher or lower when compared to prices in the US market. For example, based on exchange rates from last week, all of Apple’s bestselling MacBooks and iMacs in Australia were priced within two to seven per cent of US prices. A few days prior, some of the products were equally priced to the US, including the iPad with retina display. Looking at our entire range of Mac, iPhone, iPad and iPod products, the average differential to the US pricing last week was just five per cent.

    The average differential for our Apple software product range was minus one per cent. This, of course, takes into consideration GST. None of this is to suggest that all of Apple’s product offerings are exactly equal in price in Australia as in the United States. It is just that at any given time some Apple products may appear to be priced slightly cheaper or more expensive than comparable US retail prices.

    I would also like to clear up some common misconceptions with regard to digital content pricing. As we have explained in person to the committee as well as in our written submission dated 6 July 2012, the retail pricing model for music, movies and TV shows made available on the iTunes store is different from the pricing model for Apple branded products. The iTunes store is a digital media store.

    Apple must pay the rights holders of the digital content—the record labels, movie studios and TV networks—to distribute content in each of the territories in which the iTunes store exists. The pricing of this digital content is based on the wholesale prices which are set through negotiated contracts with the record labels, movie studios and TV networks. In Australia they have often set a higher wholesale price than the price of similar content in the United States.

    Nevertheless, our own market analysis suggests that the price of digital content sold on the iTunes store in Australia is comparable to other Australian physical and other online stores. This would indicate that the rights holders are offering competitors similar wholesale pricing. The retail price on the iTunes store is based on the wholesale price and includes in part Australia’s own statutory royalty payments, publishing fees and the GST. In both Australia and the US Apple earns a margin from the sale of movies, music and TV shows which is used to pay for the costs incurred to store, manage and serve all of the iTunes store offerings.

    To be clear: the iTunes store operates through the local Apple entity in Australia. As I have explained, the retail pricing of digital content is based on many factors and foreign exchange rates are not a major factor. The main differential is the wholesale price as set by the rights holder of the digital content. Our experience is that, if we can lower prices, we can drive a higher number of downloads.

    I am here today to represent Apple in an effort to assist the committee in better understanding why there may be differences in the prices of products sold in Australia when compared with other markets. I would like to reaffirm Apple’s strong commitment to provide our Australian customers with the world’s best products coupled with an unrivalled user experience at a fair market price. I will be happy to answer any questions you may have.

    Image credit: Apple

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    1. Daniel
      Posted 25/03/2013 at 3:37 pm | Permalink |

      I was actually impressed with Apple and King in general. I got the impression that he genuinely engaged with the committee. Pricing of Apple’s own IP has harmonised over the last 12 months. I see no reason to doubt that the rights owners are responsible for iTunes pricing as King stated on the record. King even said that if they (rights holders) harmonised their licensing fees we’d almost see parity on the AU store.

      Time to subpoena some rights holders to the inquiry I think.

      • Adam (the other one)
        Posted 25/03/2013 at 3:40 pm | Permalink |

        To be fair, he had to be dragged kicking and screaming to do this much.

      • Posted 25/03/2013 at 3:51 pm | Permalink |

        I wasn’t impressed at all. His defence of Apple’s tax affairs locally was simply misleading, and like Husic, I don’t believe Apple is not capable of pressuring rights holders to set uniform pricing.

        • Dan
          Posted 25/03/2013 at 4:28 pm | Permalink |

          Misleading how Renai? Can you go to the trouble of breaking down the costs of Apple hardware or software, putting the tax-exclusive pricing side-by-side with international pricing and with assess how reasonable or misleading those claims are?

          And do you seriously expect a retailer to be able to force content owners to drop their pricing? Wouldn’t the better idea be to bring the people who actually control the pricing before the committee to explain the discrepancies instead of targeting the storefronts?

          I’m happy for all of these companies to be held to account, but if you’re going to be wasting time on the wrong issues, it’s going to achieve absolutely nothing constructive.

          • Posted 25/03/2013 at 5:34 pm | Permalink |

            http://delimiter.com.au/2013/03/25/apple-blames-rights-holders-for-aussie-price-hikes/

            opinion/analysis
            Apologies to Apple Australia managing director Anthony King, but I do not find the executive’s argument re: iTunes prices convincing in the least. It is very well known and very clear that Apple sets certain price points for all forms of content sold in its store; while it is true that third-parties who sell software and other forms of digital content such as eBooks, music and video content through iTunes do have some latitude to set their prices, arguing that Apple has no input into the process and that it’s solely a matter for the content owners is just flat out ridiculous.

            If you go right back to the foundation of the iTunes store, as chronicled in his biography, it was then-Apple chief executive Steve Jobs who forced the music studios to the table with Apple’s pricing model at the time. I quote from Jobs’ biography:

            “Jobs’s proposal was to sell digital songs for 99 cents — a simple and impulsive purchase. The record companies would get 70 cents of that.”

            Right from the start, Apple took the prime role in negotiating prices to be set on the iTunes store for music, and although it is doubtless a complex negotiation between Apple and content owners, to imply, as King did, that Apple does not have a central role in setting such prices is just a flat out attempt to mislead the public and the politicians looking into the price hike issue.

            There’s further evidence on this issue from a legal case involving Apple in the US. In April 2012, the US Department of Justice sued Apple and five of the nation’s largest book publishers of conspiring to raise eBook prices. As far as I’m aware, the other publishers, including Macmillan and Penguin, settled with the US DoJ, but Apple is still trying to fight the good fight and alleging it did nothing wrong. Clearly the US Department of Justice believes Apple had a fundamental role in setting prices in the eBook market in the US.

            As the MPs in the inquiry pointed out to Apple, the company is likely the world’s largest buyer of digital music from a wholesale perspective, and has enormous power over digital content producers. As it was pointed out, if you’re not on iTunes, you’re not visible these days as a musician, and Apple holds the power over who and who does not appear on that marketplace, as well as setting the structures and likely often the details of how prices are set there.

            Some people may think I’m being a little too harsh here. But when the world’s largest corporation alleges it has nothing to do with prices set on its online marketplace — despite direct evidence to the contrary, as admitted by its founder in his globally read biography — what are we supposed to say? King is aware that Apple has a huge role in setting prices in iTunes. Sure, it’s not all Apple’s fault, but the claim that all the blame lies on the side of the copyright holders is just flat out not credible.

            • Pmoeser
              Posted 25/03/2013 at 7:23 pm | Permalink |

              I think you need to be a little more realistic with your expectations of what Apple can achieve re media content pricing.

              Jobs was referring to his negotiations in the USA. By the time the iTunes Store opened here and in other markets, the content owners had realised that the iTunes Store would work and therefore put higher prices on the table.

              Content owners in Australia have to try and justify paying for their operations in a market with a much smaller customer base. Therefore higher prices for content.

              Apple would be extremely chuffed to be able to charge 99c per song all over the world. The same way that McDonald’s likes to do with Big Macs.

              Pressure your federal member to call content owners to the table. They ultimately call the shots on pricing.

              • Posted 26/03/2013 at 4:14 pm | Permalink |

                @: Pmoeser: “Content owners in Australia have to try and justify paying for their operations in a market with a much smaller customer base. Therefore higher prices for content.”

                Your argument is invalid.

                The vast bulk of the content available in the Australian iTunes store is owned by non-Australian content owners, who are seeking additional returns from an additional small market at negligible additional cost to them. Unlike physical goods (including CDs, DVDs, and books), the content distribution costs of digital goods are not significantly affected by the historical ‘tyranny of distance’ both within and without Australia.

                Additionally, the iTunes store, when not hamstrung by archaic geographic distribution-rights contracts, is a global marketplace which opens up the entirety of the global Apple install-base to Australian content right-holders.

                The decision to stick with differential pricing in different markets is entirely driven by content owners seeking to bleed every last dollar from their existing relatively-captive market while they can. They are desperate to protect the ailing revenue streams from the rest of their (outmoded) business model, before ultimately capitulating the inevitable and simultaneously releasing all content globally, at a reasonable price. (And by ‘reasonable’ I don’t mean $18.99 for an ebook, $2.19 for a non-DRM song, and $49.99 for a season of a TV show.)

                • Posted 26/03/2013 at 4:21 pm | Permalink |

                  Just to clarify, I don’t believe that Apple is blameless in all this either. Higher content prices = higher revenue per unit volume for Apple as well. I believe that significantly reduced prices would lead to massively increased sales volumes, so Apple has an interest in seeing that come about – but not at the expense of pissing off their content providers who must be gradually dragged kicking and screaming into the new reality. :-)

                • Stephen
                  Posted 27/03/2013 at 9:20 am | Permalink |

                  “The vast bulk of the content available in the Australian iTunes store is owned by non-Australian content owners,”

                  It’s also important to note – These companies are not usually the content owners. They’re self appointed fee aggregators nominally acting on the behalf of the copyright owners. They do not compose or produce the product they claim to represent, only in some cases publish it.

                  We should stop pretending they’re anything to do with the creative/innovative processes, they’re middle men skimming off the talents of others and have been rendered greatly irrelevant by progress. Their business model certainly doesn’t have a right to legislative protection!

        • Guest
          Posted 25/03/2013 at 5:19 pm | Permalink |

          “I don’t believe Apple is not capable of pressuring rights holders to set uniform pricing”

          That sounds like the naive Whingepoolers who don’t believe their ISP is not capable of pressuring their wholesaler for better deals.

          iTunes has competitors. Push for “better deals” or “uniform pricing” and the rights holders go to the competitor.

          It is a free market out there.

          You have to do better than that to prove price manipulation.

          • SMEMatt
            Posted 25/03/2013 at 8:53 pm | Permalink |

            It’s a free market where looking at the music space last figure I could find is (because it is fun to pick on record labels) apple have a 64% market share of digital downloads and a 29% share of all music sale if you include physical. That is a lot of clout.

        • Richard Ure
          Posted 26/03/2013 at 1:12 pm | Permalink |

          “Pressuring” didn’t do Apple much good for a long time when it came to the Beatles. Could it be deals where done and locked in when iTunes was small and getting excited about its first billion downloads. Now a billion is a regular event but the original arrangements might still have time to run.

          I don’t know, just asking.

        • Mudguts
          Posted 26/03/2013 at 3:08 pm | Permalink |

          Apple wants to keep the studios and record companies happy by providing them with as much revenue as they can.

          Sure Apple has the market share, but at the same time, with Android devices nipping at their heels, if Apple were to squeeze the studios and record labels harder, it could backfire and the result would be bad for Apple.

          It’s the copyright and content owners who need to adjust their mentality, not necessarily Apple.

          Keep prices high and piracy will remain where it is. Make it cheap to buy legitimate content and people will pirate less. There will always be those who want things for free, that’s human nature.

    2. Posted 25/03/2013 at 3:48 pm | Permalink |

      Yes, but Apple was also sued by the DOJ for price-fixing of eBooks. It refused to settle. There’s a lot more to this than “the publishers made me do it”.

    3. Paul Thompson
      Posted 25/03/2013 at 3:58 pm | Permalink |

      At best I think we will find that Apple’s actions are slightly more justifiable than Microsoft or Adobe’s.

    4. Ray Herring
      Posted 25/03/2013 at 5:28 pm | Permalink |

      I too would like to see the content owners themselves brought in front of the committee, would be interesting to see what they would say about why their prices are set so high.

      • Greg Alexander
        Posted 26/03/2013 at 10:10 am | Permalink |

        The local distributors need to be questioned. I would be surprised if Apple didn’t try to push the prices down originally, but if the local distributors colluded to choose a price point and ‘defend against Apple and Telstra’, then that collusion could be a real issue.

        • Djos
          Posted 26/03/2013 at 10:27 am | Permalink |

          Agreed, there’s a very good reason they are frequently called a “cartel”, personally I’d just call the the content mafia as they are a bunch of thugs not willing to loosen their grip on their old out if date distribution models!

    5. Oliver Townshend
      Posted 25/03/2013 at 6:00 pm | Permalink |

      I notice Adobe is copying a mountain of abuse on one of their facebook ads. I wonder if Apple will end up in the same position?

      • Karl
        Posted 25/03/2013 at 7:56 pm | Permalink |

        I doubt it very much. Apple have solid reasoning behind all their pricing, even if some of it is questionable. Adobe’s ‘reasoning’ is you can buy something else if you don’t like it.

        • Paul Thompson
          Posted 26/03/2013 at 9:58 am | Permalink |

          For example, have you seen their ‘cloud’ product?

    6. Greg Alexander
      Posted 26/03/2013 at 10:06 am | Permalink |

      (sorry, mobile website comment seems to have been lost).

      I assume that Apple counts the profits twice when selling internationally.

      ie: The global division sells to Apple Australia for a profit. And then Apple Australia sells to consumers for a profit.

      Is that right? And if so, is it also true when Apple sells to the UK, Canada, Brazil, China etc? More importantly, is it true when Apple sells to the USA?

      • Greg Alexander
        Posted 26/03/2013 at 10:08 am | Permalink |

        Sorry Wrong thread!!




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